Facebook Said to Bid for AOL Patents Before Microsoft’s Win

Dozens of Apple's Steve Job's patents are on display in the atrium of the Madison Building at the United States Patent and Trademark Office Head Quarters Campus in Alexandria, VA, 2011. Photographer: Rod Lamkey Jr./The Washington Times/Landov

April 19 (Bloomberg) -- Facebook Inc., the biggest social-networking service, made an offer for AOL Inc.’s patent
portfolio before losing out to Microsoft Corp.’s $1.06 billion
bid, two people with knowledge of the matter said.

The proposal by Facebook was too low, said the people, who
asked not to be identified because the discussions haven’t been
disclosed. Still, Microsoft intends to sell most of the newly
acquired portfolio because it doesn’t consider all of the 800
patents and related applications essential to its intellectual
property arsenal, according to another person with knowledge of
the matter. Facebook may be interested in those patents
Microsoft plans to sell, one person said.

The technology industry has been bulking up on patents amid
a surge in disputes over ownership of rights to key
breakthroughs in areas such as mobile communications.
Microsoft’s ability to find a buyer will hinge on the quality of
the patents, said David Berten, founder and partner of Global IP
Law Group, a Chicago-based law firm.

“Often in large portfolios the value is concentrated in a
smaller subset of patents, so it can be that in a 800-patent
portfolio only 20 contain most of the value,” Berten said.

Larry Yu, a spokesman for Facebook, declined to comment, as
did Kevin Kutz, a spokesman for Redmond, Washington-based
Microsoft, and Caroline Campbell, a spokeswoman for New York-based AOL.

Sandberg-Led Discussions

On the same day Microsoft unveiled the AOL deal, Facebook,
based in Menlo Park, California, said it is buying the Instagram
photo-sharing tool for $1 billion. Facebook Chief Operating
Officer Sheryl Sandberg led the negotiations to acquire AOL’s
patents, one person said.

Facebook has lined up $8 billion of available credit from
its IPO underwriters. Like more established technology
companies, such as Apple Inc. and Google Inc., it is buying
intellectual property to protect itself from patent-infringement
litigation.

Facebook, which is in the midst of a patent dispute with
Yahoo! Inc., acquired 750 patents from International Business
Machines Corp., a person with knowledge of the matter said on
March 22. Yahoo sued Facebook on March 12, alleging that the
social network infringed patents covering such functions as
Internet advertising and information sharing.

“If an unfavorable outcome were to occur in this
litigation, the impact could be material to our business,
financial condition or results of operations,” Facebook said in
a March 27 filing.